Sunday, December 4, 2016

An India that uses no cash; as ideas go
that’s pretty seductive. And viewed from the corridors of power, it’s probably
even more captivating given the possible rewards, especially the political and
reputational capital that will accrue to whoever helms the desertion of cash.

But the thing is, cash has evolved over
centuries into an almost perfect instrument for the exchange of goods and
services because it is instantly valuable, widely accepted and convenient. And
that’s the sort of utility it would be injudicious to discount while imagining
a cashless world.

The other thing to remember is that grand
ideas often ignore or gloss over the devils that lurk in the details. And if
experience is anything to go by, we in India appear to have a congenital ability
to believe that the details will take care of themselves. Mostly though, they
don’t.

Given how many Indias exist, sometimes in
parallel, sometimes intersecting, it would be imprudent to embark on a single sweeping
move to a cashless economy. Instead, adopting a strategy of aggregation of
marginal gains through small but continuous improvements could get us there
just as quickly, but without the trauma and uncertainty that will obviously
accompany a forced move.

It’s also probably premature to talk about a
cashless India at this moment, given how many of the more evolved economies,
with fewer people, still use a fair bit of cash. Instead, it would be more
sensible to aim for — at least in the medium term — a cash-light India where
cashless transactions overtake ones that use cash. Getting there will, itself,
be a pretty significant accomplishment.

The government has created a committee to
look at how India can go cashless, and that’s a welcome step. But as someone
who uses both cash and e-payment options, what concerns me is that a move to a
cashless economy or even a cash-light one should benefit all Indians. And if we
are to make that transition to e-payment relatively painless we may want to
address some of these issues.

Scrap
minimum limits and transaction charges

Very often in India, you have to either spend
a minimum amount to use a debit or credit card or pay a transaction charge. And
sometimes, no matter how much you spend, you still have to pay a transaction
charge if you use a card.

If we want e-payments to dominate, these
constraints on electronic transactions have to go, permanently. Of course banks
and card and e-wallet companies need to earn their bread. So perhaps some of
the bright people in Delhi’s North Block or at the RBI can figure out a way to
scrap transaction charges on e-payments while also ensuring that the companies’
revenues aren’t hit; government subsidies or tax breaks, perhaps? And while
they’re at it, could they look at banks removing transaction charges on online
and offline bank transfers for non-premium customers too?

Creating
the infrastructure for e-payments

Some months ago, I was settling a large-ish
bill at a hotel in a slightly remote location. But my card just wouldn’t work
despite being swiped through three different machines from three different
banks. Finally, a hotel staffer gave the machine with my card in it a hard
whack and voila, the transaction went through. I’m not sure if the problem was
with my card, the hotel’s card machines or its Internet connection. But I
shudder to think of what would have happened if I’d found myself in a similar
situation over the past few weeks and whacking the card reader hadn’t worked.

While the use of e-payments has steadily
grown over the past few years, it’s clear that the infrastructure required to
ensure these systems function flawlessly hasn’t grown as quickly. And over the
past few weeks, e-payments have shot up but anecdotal evidence indicates that
incidents of card or e-wallet failures have also increased possibly because of
the high levels of stress on the networks. In several instances, outlets that
claim to accept e-wallets weren’t actually ready to do so.

Another aspect of going cashless is the need
to address quality levels in our banking and financial infrastructure. Given
how iffy e-payments often are, we need to have laws that prescribe and enforce
minimum standards for all technology, material and other elements — cards, electronic
chips, card machines, network gear, Internet connections and so on — used in
our banking and financial infrastructure.

Yes, the RBI does have guidelines on certain
aspects of electronic transactions, but it’s unclear if they are legally binding
and what happens if banks don’t follow them. And yes, India’s Information Technology Act has some general provisions
that can be applied to electronic financial transactions. But what we need is a
law that specifically and comprehensively covers issues related to electronic
financial and banking transactions, including oversight, processes and systems,
technology standards and equipment and material standards.

Better
consumer education

A few months ago, several people in Kerala
were tricked into parting with their debit card information, including the PIN,
to someone who claimed to be calling from the victims’ bank. In each instance,
the victim was defrauded of several thousand rupees. What was disturbing about
these incidents was that all those who were defrauded were mid-level government
officials who should have known better than to reveal sensitive financial and
personal information to an unknown caller.

At first glance this seems to be an instance
of people being careless with personal information, but that’s not the entire
picture. For instance, I often get a call, ostensibly from my bank, a few minutes
after I have used my card. The caller usually wants me to confirm using the
card and then insists I authenticate my identity by revealing more personal
information — just the sort of thing banks warn customers against doing.
Occasionally, I’m even told the transaction will be cancelled if I do not
confirm my identity by answering the questions put to me.

It’s in these spaces where banking and technology
intersect that people, including otherwise careful people, seem to throw
caution to the winds possibly driven by the fear of losing access to their
money. And given that many of us are still not entirely comfortable with
technology, though we may use it, there’s room for things to go awry.

The RBI and individual banks frequently
highlight the need for exercising caution, especially while revealing personal
information or using debit cards or conducting online transactions. But obviously,
this isn’t enough. While there’s certainly an element of individual
responsibility involved, it’s also important to invest in much more effective
and widespread initiatives to promote awareness of safe banking practices.

Information
security and privacy protection

In India, we tend to be very blasé about
privacy. The general approach seems to be ‘what’s the big deal’, which is
reflected in the existing patchwork of guidelines, rules and laws on privacy
and data protection. We’ve even had public figures quip about privacy being
dead since people use social media, without realising that using social media
involves an element of choice that doesn’t really exist when it comes to
banking and similar transactions.

Then, there’s the issue of data security,
which has become particularly urgent over the past few months after a series of
fraudulent transactions using stolen debit card information. There’s so much of
opacity around some of these incidents that it isn’t yet publicly clear just
where and how the breaches occurred and what their impact is.

Given that researchers at Newcastle
University seem to have hacked Visa credit cards in just 6 seconds can’t help wonder
how secure all these e-transactions and digital transactions really are. And I
really don’t think biometric protection offers any sustainable answers either.

What all this highlights is that it’s time
for us to get serious about protecting personal financial information,
especially if we want to promote electronic transactions. Of course there are
certain circumstances under which financial data will have to be accessed and
shared; credit reports, for instance. So what we need is to spell out very
clearly who can access an individual’s personal financial data, for what, to
what extent, what such data can be used for and what happens if there is a
security breach. And this will be possible only if we have coherent and
comprehensive privacy and data protection laws that match the best in the
world.

Ensuring
inclusive banking

Quite a bit has been done over the past several
years to reach out to those on the margins and improve financial inclusion. But
for many, banking is still extremely unfamiliar territory. So any move towards
a cashless economy needs to be preceded by meaningful efforts to help people on
the margins get comfortable with modern banking and help them learn how to use
banking and e-payment technology safely. In addition, banking technology
infrastructure across the country needs to be bolstered and those who work in
banks and financial institutions need to be trained to be more empathetic and
inclusive while attending to less-affluent customers.